If you do business in any state, you need to foreign-qualify in that state, which involves the same and sometimes even greater fees than if you just register locally as a domestic corporation/LLC.

For example, incorporating in Indiana doesn't save you from New York fees if you do transactions in New York. Transacting has different definitions state by state, and may include anything from accepting orders to having remote employees who work in that state. Most importantly, having a physical office in a state always requires you to foreign-qualify, so registering in another state doesn't really work for companies that are not fully virtual.

Speaking of virtual... does anyone follow the development of Vermont Virtual Corporations? What are the advantages, limitations, etc?

I would agree with you, when it comes to most non-virtual companies. There are also tax implications.

But for virtual companies, this is all solved by jurisdiction on the purchase contract, I believe. In other words, people placing orders on your website is equivalent to them driving to the state and placing them in person. So the transaction is inside state boundaries, and there is no need to foreign qualify in other states.

In addition, I had a company that sold services electronically but also shipped smaller lesser physical items as part (signs for the service... kind of complicated but the actual service doesnt matter). We never had any issues across state lines.

I think employees and locations are what count, for tax reasons, but buyers/consumers get to handle all the rest via use taxes in their state. Contract issues above apply.

At least, this is what I have been told, I'm no attorney.

No idea about Vermont, sounds interesting though.

Thanks Brushfire, that was really useful.